Food Fraud Vulnerability

Assessment and Mitigation

Are you doing enough to
prevent food fraud?
 Food safety and quality
management systems have
traditionally focused on
preventing unintentional
contamination with known
pathogens or substances.

Food fraud prevention

requires a different
approach: it must take into
account economic incentives
and deceptive criminal
behaviour.

2
Are you doing enough
to prevent food fraud?

Food fraud is simply defined as intentional

deception using food for economic gain. 1

Recent food fraud scandals vulnerability assessment and

GFSI compliance from around the world have to prepare a food fraud
will soon require a highlighted the need to mitigation plan. 3
food fraud strengthen food fraud
prevention measures across Consumer safety is the most
vulnerability
the entire supply chain. Not important objective of food
assessment and only is this necessary to fraud prevention, but there is
food fraud protect the health of also a financial impact. Food
mitigation plan. consumers, but corporations fraud costs the global food
and regulators both know industry an estimated US$
that trust is the foundation 30 to 40 billion each year 4. A
upon which efficient, single incident can
functioning markets are permanently destroy a
built. valuable brand, cause long-
term industry-wide losses,
Current food safety and close off export markets and
quality management systems, damage trust in public
however, were not originally institutions.
designed to prevent fraud. 2
Food fraud prevention PwC has the expertise in risk
requires a different approach: assessment, supplier
1. Michigan State University Food Fraud Reference
it must take into account management and internal
Sheet economic incentives and controls required to help
2. SSAFE Food Fraud Vulnerability Assessment
Tool, 16 Dec 2015 deceptive criminal behaviour. companies assess their
3. New requirements for a documented food fraud vulnerability to food fraud,
vulnerability assessment and a food fraud
mitigation plan will be included in the GFSI Recognising this, the Global then design and implement
Guidance Document Version 7, to be released in
2016.
Food Safety Initiative (GFSI) measures to mitigate food
4. Professor John Spink, Director of the Food Fraud will soon require companies fraud risk.
Initiative Michigan State University
to conduct a food fraud

3
Seven types of food fraud

Food fraud is intentional deception using food for economic gain, and generally falls under at least
one of the following categories: 5

Dilution
Mixing a liquid of high value with a liquid of lower value.

Substitution
Replacing an ingredient, or part of the product, of high value with another ingredient, or
part of the product, of lower value.

Concealment
Hiding the low quality of food ingredients or product.

Mislabelling
Placing false claims on packaging for economic gain.

Unapproved enhancements
Adding unknown and undeclared materials to food products to enhance the quality
attributes.

Counterfeiting
Copying the brand name, packaging concept, recipe, processing method etc. of food
products for economic gain.

Grey market production/theft/diversion

Sale of stolen or excess unreported product.

5. SSAFE Food Fraud Vulnerability Assessment Tool, 16 Dec 2015

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Food fraud and food safety:
What is the connection?

Acts of food fraud create a vulnerability that

dangerous adulterant-substances have been added
or that the product has been mishandled and
become dangerous. 6

Food safety management Unfortunately, criminals A different approach

systems generally focus on usually lack the motivation
the unintentional and expertise to determine is required to
contamination of food by whether or not their actions prevent intentional
known ingredients, will result in hygienic or adulteration that is
pathogens, mishandling, or toxicological risks to eventual
processing. Food fraud, consumers. specifically devised
however, is an intentional act to evade detection.
perpetrated for economic While the vast majority of
gain. reported food fraud cases do
not result in a threat to
The criminal’s fraudulent human health, acts of food
ingredients and/or fraud create a vulnerability
modifications are specifically that dangerous adulterant-
engineered to evade the substances have been added
purchasers’ quality or that the product has been
assurance and quality mishandled and become
control systems. dangerous. 9
6. Spink, Fortin, Moyer, Niao and Wu. Food Fraud
Prevention: Policy, Strategy and Decision-
Only the criminal knows Making – Implementation Steps for a
which adulterant-substance Government Agency or Industry, CHIMIA
International Journal for Chemistry Vol 70 Nr 5,
has been added, or which Pages 320-328, 2016

food ingredient has been 7. Moore, Spink, Lipp; Development and

Application of a Database of Food Ingredient
manipulated and how. 7 Fraud and Economically Motivated Adulteration
from 1980 to 2010, Journal of Food Science Vol
77 Nr 4, 2012
Moreover, the adulterants 8. Moore, Spink, Lipp; Development and
introduced by food fraud are Application of a Database of Food Ingredient
Fraud and Economically Motivated Adulteration
often unconventional from 1980 to 2010, Journal of Food Science Vol

substances that are not 9.

77 Nr 4, 2012
Spink, Fortin, Moyer, Niao and Wu. Food Fraud
anticipated by food safety Prevention: Policy, Strategy and Decision-
Making – Implementation Steps for a
management systems, and Government Agency or Industry, CHIMIA
International Journal for Chemistry Vol 70 Nr 5,
only become known after Pages 320-328, 2016
they are well into the supply
chain. 8

5
 A science-based framework
for understanding food
fraud risk

“Food fraud generally occurs where the potential

for and the temptation of food fraud are high and
the risk of getting caught and sanctions are low.” 10

Fraud is economically-motivated criminal activity, so we must

understand criminal behaviour and decision-making in order to
assess and mitigate the risks of food fraud. In contemporary
criminology, economically motivated crimes result from the
combination of opportunities, motivations and inadequate
control measures.11 By analysing these three aspects, we can
estimate the food fraud vulnerability for any food product or
ingredient.

figure 1: Food fraud vulnerability assessment framework

Control Food fraud

Opportunity Motivation
measures vulnerability

10. European Parliament Report on the Food Crisis, Fraud in the Food Chain and the Control Thereof, 4 Dec
2013
11. SSAFE Food Fraud Vulnerability Assessment Tool (Annex II), 16 Dec 2015

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Opportunity
For any given food product or ingredient, the nature of its
composition, qualities, production process, and supply chain,
as well as its geographic origins determine the opportunity for
fraud.12 For example, food fraud is generally easier for liquids
than solids, and complex foods with multiple ingredients
generally offer greater fraud opportunity than simple, single-
ingredient foods.
Longer supply chains result in higher food fraud risk. Every
time there is a transaction involving food, the buyer depends
on the seller to present truthful information about the
product. In the words of Professor Chris Elliot, “Every time
you have a transaction, there’s another opportunity to cheat.” 13
This applies to globally traded bulk food commodities as well
as primary agricultural products that make their way from
small household farms to nearby urban consumers via layers
of wholesalers, distributors and retailers.
Specific factors can include:14
• Physical characteristics and composition
• Availability of adulteration technology/knowledge
• Technical simplicity or complexity of adulteration “Every time you have a
transaction, there’s
• Accessibility to processing lines
another opportunity to
• Complexity and transparency of the supply chain cheat.” 13
• Detectability of fraud

figure 2: Physical qualities and the composition of food products or ingredients are
determinants of the fraud opportunity. 15

Solid Powders or other Liquid

granular substances

Lower technical Higher technical

opportunity opportunity

Single ingredient, primary Multiple ingredients Multiple ingredients,

agricultural products complex food

12. Wageningen University & Research

13. Professor Chris Elliot of the Institute for Global Food Security as quoted by the Financial Times, “The
fight against food fraud”, 26 Mar 2016.
14. Wageningen University & Research
15. Wageningen University & Research

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Motivation
Basic economic motivation can take two different forms:
revenue maximisation or cost minimisation.16 The market
conditions for each food product and ingredient determine the
level of economic motivation to commit fraud. The more
competitive the market, the more incentive there is to use
lower cost ingredients as substitutes. High priced food items
or items for which subtle characteristics account for
significant price differences can present lucrative
opportunities for fraudsters. In the words of Andy Morling of
the UK Food Standards Agency’s National Crime Unit, “Where
there is money, there is crime; where there is big money,
there’s big crime.” 17
Motivation is also affected by cultural and behavioural factors.
The economic motivation to commit fraud is bound to be
lower when the seller and buyer have a long-term relationship
and history of conducting mutually beneficial transactions.
Motivation is increased by personal or commercial
desperation. A business that is protecting a valuable brand
will be less motivated to commit fraud than a trader of
fungible commodities.

Economic and market Cultural and

factors 18 behavioural factors 19 “Where there is money,
there’s crime; where there
• Special attributes that • Personal gains or
determine value desperation is big money, there’s big
crime.” 17
• Financial strains • Ethical business culture
• Level of competition • Corruption level
• Supply/demand and • Victimisation
pricing
• Blackmail
• Competitive strategy
• Economic health or
conditions

16. SSAFE Food Fraud Vulnerability Assessment Tool (Annex II), 16 Dec 2015
17. Andy Morling, Chief Executive of the UK Food Standards Agency’s National Food Crime Unit, as quoted
by the Financial Times, “The fight against food fraud”, 26 Mar 2016
18. Wageningen University & Research
19. Wageningen University & Research

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Controls
A food company’s primary fraud prevention measures are its
food safety management and quality control systems, as well
as food quality and safety managers and staff. External
controls include food safety agencies, anti-fraud regulations,
and law enforcement agencies. Employees, suppliers and
customers 20
also play important roles in reducing
21
the risk of
20
food fraud.
Specific controls include: 21
• Information systems (e.g. traceability, mass balance)
• Fraud monitoring and verification systems
• Whistleblowing guidelines and protections
• Ethical codes of conduct
• Legal framework and enforcement
• Social control chain network
• Contractual requirements
• Employee integrity screening

20. SSAFE Food Fraud Vulnerability Assessment Tool, (Annex II), 16 Dec 2015
21. Wageningen University & Research

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Common targets of food fraudsters
In a study of English-language academic and media reports, researchers identified the following
food products as among the most frequently targeted by fraudsters: 22
Olive oil Wine Fish
Honey Vanilla extract Apple juice
Saffron Milk Maple syrup
Coffee Orange juice Chili powder

By category, the food products most frequently cited in scholarly reports were oils, milk, fruit
juice/concentrate/puree, and spices. A quick application of the “opportunity + motivation –
controls” framework makes it easy to understand why criminals would choose these products for
their illicit activities.
Highly competitive markets create strong motivation to find low cost substitutes. Animal by-
products (ABPs) or illegal carcasses are notable examples. The European Commission’s Food
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Fraud Network reported that the majority of its cases in 2015 involved ABPs. In China, a
government insurance program compensates farmers for pigs that become sick or die. In a 2015
operation, police broke up a network that illegally traded and processed those carcasses. They
arrested 110 people across 11 provinces and confiscated 1,000 tonnes of meat and 48 tonnes of
cooking oil. 24
The increasingly global nature of supply chains multiplies the risk and geographic reach of food
fraud, as illustrated in last year’s case of ground peanut shells being added to cumin. With cumin
crop yields 40-50% lower than normal due to high temperatures, the economic motivation was not
hard to see. While laboratory testing discovered the adulteration in the US and Europe, the exact
source of contamination was practically impossible to pinpoint, with three quarters of the world’s
cumin originating in India.25

22. Moore, Spink, Lipp; “Development and Application of a Database of Food Ingredient Fraud and Economically Motivated Adulteration from 1980 to 2010”, Journal
of Food Science Vol 77 Nr 4, 2012
23. European Commission, Food Fraud Network Activity Report 2015
24. China Daily, “Police break up criminal meat network, arrest 110”, 13 January 2015, http://usa.chinadaily.com.cn/epaper/2015-01/13/content_19306768.htm
25. http://www.foodqualityandsafety.com/article/the-cumin-scandal-accidental-or-fraudulent/

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Food fraud challenges

Industry-wide challenges
The challenges of combatting food fraud are complicated by the many opportunities for
adulteration and deception, as well as the growing complexity and geographic reach of today’s
multi-tiered production and supply chains. Some industry-wide challenges include:

• Difficulty of detecting food fraud

Detecting food fraud is difficult because deception is a primary objective of the fraudster.
Testing is not only expensive, but most testing methods are designed for a specific known
adulterant-substance. Criminals will always be searching for new substances or methods that
are not targeted or detectable by current systems. Effective anti-fraud testing programs require
continuous monitoring of incidents and market conditions to target the current, most likely
adulterant-substances.

• Lack of upstream supply chain visibility

Regulations in major markets such as China, the US and the EU generally require one-up one-
down traceability. Sourcing practices of tier 1 suppliers are not always assessed or understood
and visibility to tier 2 suppliers is often limited.

• Under-investment in supply chain risk management

There are clear financial incentives to optimise supply chains for cost efficiency and to minimise
working capital. But with shareholders focused on short-term results, it is difficult to quantify
the financial benefits of time and money spent on risk management. Effective supply chain risk
management requires significant investment in planning, analysis and management
information systems.

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Additional challenges in China
As China’s production, processing, manufacturing and distribution have grown in scale and
diversity, the opportunities and motivation for food fraud have increased dramatically. After an
influx of investment and the introduction of new manufacturing and processing technology,
agricultural inputs, and chemical additives, China now has some of the world’s largest food
companies. At the same time, the sector remains extremely fragmented with millions of small
operators.

Some notable aspects of China’s food industry landscape make the prevention of food fraud
especially difficult.

• Sheer volume of production

Since 1980, China’s crop production has grown by more than 200%, meat production (including
poultry) has grown by more than 500%, and dairy output has increased by more than 3000%.
China produces and consumes half of the world’s pork, and is the largest producer of fish, eggs,
rice, wheat, fruit, vegetables and tea; the second largest producer of corn and chicken; and the
third largest producer of milk.

• Highly fragmented production, processing, distribution and retail

This enormous volume of food is produced in an incredibly fragmented industry. Although large-
scale livestock and horticulture operations are increasing, agriculture is still mainly conducted by
a vast number of small farms. Processing and manufacturing are consolidating, but there remain
large numbers of small workshops. Distribution and retail are also highly fragmented.

In this environment, it is very difficult for the government to supervise and monitor all producers
and processors for adherence to best practices, and it is especially difficult to catch small-time
fraudsters operating out of hidden workshops. It is also difficult for corporations to ensure that
fraudulent products do not enter their supply chain.

figure 3: Relative levels of fragmentation in China and the US agriculture sectors

Number of farms with Number of farms that Number of farms that

cropland 26 raised pigs for slaughter 27 raised broilers 28

184 million 52 million 24 million

1.6 million 56 thousand 33 thousand

China US China US China US

(2006) (2012) (2013) (2012) (2013) (2012)

26. China 2006 Agricultural Census, 2012 USDA Census of Agriculture

27. 2012 USDA Census of Agriculture, 2014 China Animal Husbandry Yearbook
28. 2012 USDA Census of Agriculture, 2014 China Animal Husbandry Yearbook

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• Limited technical expertise in small operators

The variety of additives and industrial chemicals is immense in China’s rapidly industrialising
economy. Safely applying these to food products, either legally or illegally requires some level of
training and expertise.

Criminal operations are likely to be small-scale and lacking the expertise to understand whether
their adulterations or other modifications will be harmful to human health. Legitimate small
operators and even consumers also might lack the expertise to distinguish between fraudulent
products and authentic ones.

This is made more difficult by the lack of standardisation that comes with a fragmented industry
landscape, as well as the deliberate deception that is a fundamental aspect of food fraud.

• Highly competitive markets and thin margins

China’s food sector is one of the most competitive in the world, with razor thin margins. Small
businesses operating in high pressure situations may be tempted into using fraudulent products
to cut costs and avoid bankruptcy.

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New GFSI food fraud requirements

GFSI compliance will soon require companies to

conduct a food fraud vulnerability assessment and
to prepare a food fraud mitigation plan.

The GFSI vision is that the mitigation of food fraud and its potential impact on consumers’ health
will become an integral part of a company’s food safety management system.

The GFSI Guidance Document Version 7, to be released in late 2016, will require companies to：

• Perform a food fraud vulnerability assessment to identify potential vulnerabilities and prioritise
food fraud measures.

• Have a food fraud vulnerability control plan in place that specifies the control measures the
organisation has implemented to minimise the public health risks from the identified food fraud
vulnerabilities and be supported by the organisation’s Food Safety Management System.

During a food safety certification audit, conducted against GFSI recognised schemes, the auditor
will review the documentation related to the vulnerability assessment process and confirm that a
comprehensive control plan has been developed and implemented by the company. 29

29. GFSI Position on Mitigating the Public Health Risk of Food Fraud, 2014

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 GFSI currently recognises the following schemes:

• Primus GFS Standard

• Global Aquaculture Alliance Seafood

• Global G.A.P. Produce Safety Standard

• Global Red Meat Standard

• SQF Code

• IFS Food Standard

• BRC Global Standard for Food Safety,

• BRC Global Standard for Packaging and Packaging

Materials

• BRC Global Standard for Storage and Distribution

• IFS PACsecure

• BAP Seafood Processing Standard

• Global G.A.P. Integrated Farm Assurance Scheme

• FSSC 22000

• Canada GAP

• IFS Logistics

• China HACCP

In 2015, China HACCP became the first government-owned

scheme to be recognised by GFSI.

Beyond the food safety vulnerabilities, food fraud creates

tremendous economic harm and undermines the trust in the
food supply chain. Food fraud undermines the consumer
trust of industries, companies, and even public institutions.
Addressing and preventing food fraud is important to
sustain economic growth, to maintain the flow of food
across longer supply chains, to increase consumer trust in
the economy, and to maintain social harmony. 30

30. Professor John Spink, Director of the Food Fraud Initiative Michigan State University

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How we can help

Food fraud vulnerability assessment

To support compliance with the new GFSI guidelines, we can
deploy our risk analysis expertise to conduct a thorough food
fraud vulnerability assessment. PwC employs a food fraud
vulnerability assessment framework that is based on the study With our expertise in
of criminal behaviour and decision making, and applies fraud
theory to support the identification of the vulnerabilities. This risk assessment,
framework was developed in cooperation with SSAFE,31 the internal controls, and
University of Wageningen RIKILT and the Free University of supplier management,
Amsterdam. PwC can conduct a
The assessment framework can be applied anywhere in the food food fraud
supply chain, from animal feed and primary production to vulnerability
manufacturing and catering. It is most useful when conducted
on individual ingredients, products, geographical units or
assessment, followed
facilities or production lines. The units on which the assessment by the design and
is conducted can be prioritised by economic value, or by the implementation of a
potential for fraud-related safety risks, brand damage or tailored food fraud
financial loss.
risk mitigation plan.
The assessment consists of 50 questions that cover the three
main elements of food fraud vulnerability, i.e. opportunity,
motivation and control measures. The “Opportunities” and
“Motivations” sections assess risks related to your company’s
internal and external environment. The “Fraud Control
Measures” section looks at your company’s existing controls.

31. SSAFE is a non-profit organisation that promotes the integrity of the global food system. Its members represent diverse aspects of the food supply chain and
include 10 of the world’s largest food industry corporations. SSAFE's vision is to create a safe and robust global food supply system that protects human, plant
and animal health.

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 • Opportunities

The Opportunities section looks at vulnerability to criminal

activity. It includes eleven questions related to ingredients,
product and process characteristics, features of the
Opportunity chain/industry network, and historical evidence of fraud
with particular food products and ingredients. (Please refer
to Figure 5 on page 20 for an illustrative summary of a food
fraud opportunities assessment.)

• Motivations

This section assesses the types of motivations individuals

Motivation may have to commit fraud for a particular ingredient or
food product. It includes twenty questions that cover
pricing and market characteristics, history of fraud and
other criminal offences for the industry and individual
parties in the supply chain, as well as the economic
challenges for the company, suppliers and the industry.
Control (Please refer to Figure 6 on page 21 for an illustrative
measures summary of a food fraud motivations assessment.)

• Control measures

The Control Measures section assesses the measures

currently in place to help prevent fraud. This section
consists of nineteen questions about mitigation and
Food fraud contingency measures, including internal hard controls,
vulnerability internal soft controls, and external controls of
suppliers/customers and the wider sector environment.
(Please refer to Figure 7 on page 22 for an illustrative
summary of a food fraud controls assessment.)

For more detailed insight into the framework, the

Food Fraud Vulnerability Assessment tool can be
downloaded free of charge, in Chinese or English, at
www.pwc.com/foodfraud, or in spreadsheet form at
www.ssafe-food.org. The assessment is also available
on the Apple App Store and Google Play.

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 Food fraud mitigation plan
GFSI compliance will require a documented food fraud
mitigation plan. The plan must be designed to address the risk
factors identified in the food fraud vulnerability assessment. It
will be different for every company depending on the types of
risks identified, as well as the nature of the companies’
ingredients, products, and geographic presence.

PwC can help you design and implement an food fraud risk
mitigation plan, employing our extensive experience in risk
management, internal controls and supplier management. A
food fraud mitigation plan will address areas such as governance
processes, company ethics, workplace culture, sourcing and
supplier management, and controls over processing and
distributing food to consumers.

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With extensive experience and expertise in
risk assessment, supplier management and
internal controls, PwC’s Food Supply and
Integrity Services team can help you
conduct a thorough food fraud risk
assessment, followed by the design and
implementation of a tailored food fraud
risk mitigation plan.

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Appendix: Examples of Food Fraud
Vulnerability Assessment Results

Figure 5: Illustrative example of the Opportunities segment of the food fraud vulnerability
assessment

Certainty Opportunities

1. Complexity of adulteration of raw

materials

2. Availability, technology and knowledge to

adulterate raw materials

3. Detectability adulteration of raw materials

4. Availability, technology and knowledge to

adulterate final products

5. Detectability adulteration final products

6. Complexity of counterfeiting

7. Detectability of counterfeiting

8. Interference processing lines

9. Transparency of network

10. Historical evidence fraud raw materials

11. Historical evidence fraud final products

Very Reasonably Uncertain Low Medium High

certain certain

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Figure 6: Illustrative example of the motivations segment of the food fraud vulnerability
assessment

Certainty Motivations

12. Supply and pricing raw materials

13. Valuable components or attributes of

raw materials

14. Economic conditions own company

15. Organisational strategy own company

16. Ethical business culture own company

17. Criminal offences own company

18. Corruption level country own company

19. Financial strains supplier

20. Economic conditions supplier

21. Organisational strategy supplier

22. Ethical business culture supplier

23. Criminal offences supplier

24. Victimization of supplier

25. Corruption level country supplier

26. Economic conditions branch of industry

27. Criminal offences customer

28. Ethical business culture branch of

industry

29. Historical evidence branch of industry

30. Level of competition branch of industry

31. Price asymmetries

Very Reasonably Uncertain Low Medium High

certain certain

21
Figure 7: Illustrative example of the Food Fraud Controls segment of the food fraud vulnerability
assessment

Certainty Control measures

32. Fraud monitoring system raw materials

33. Verification of fraud mon. system raw

materials

34. Fraud monitoring system final products

35. Verification of fraud monitoring system

final products

36. Information system own company

37. Tracking and tracing system own

company

38. Integrity screening own employees

39. Ethical code of conduct own company

40. Whistle blowing own company

41. Contractual requirements suppliers

42. Fraud control system supplier

43. Mass balance control supplier

44. Tracking and tracing system supplier

45. Social control chain network

46. Fraud control industry

47. National food policy

48. Law enforcement local chain

49. Law enforcement chain network

50. Contingency

Very Reasonably Uncertain Low Medium High

certain certain

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Contact us
Amy Cai
PwC China and Hong Kong Priority Services Leader
+ 86 (21) 2323 3698
[email protected]

Samie Wan
PwC China and Hong Kong Food Supply & Integrity Services Partner
+ 852 2289 2019
[email protected]

Wenjing Cao
PwC China Food Supply & Integrity Services Director
+86 (10) 6533 7026
[email protected]

Fiona Zhang
PwC China Food Supply & Integrity Services Director
+86 (10) 6533 3669
[email protected]

www.pwccn.com
This content is for general information purposes only, and should not be used as a substitute for
consultation with professional advisors.

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